When you’re starting off as a creator, you’re probably incurring more expenses than income. That’s totally cool — it’s how everyone starts! But let’s talk about the best business structure to set your creator biz up for success. While you’re just getting things started, it’s easiest to organize yourself as a sole proprietor. It’s easy because you don’t have to do much!
The only thing you need to do is separate your business and personal expenses. You should know that you are able to use your business expenses to offset your business income — meaning you can potentially reduce your tax bill by tracking things correctly. This makes it super important to track expenses on business-related items like renting studio space or equipment, camera or gaming purchases, editors or producers, meals, and travel. We recommend you track your income and expenses in one place (we’re biased, but we recommend the Creative Juice business banking account). That way it’s easier for you to prove to the IRS which expenses are personal and which are for business purposes.
The IRS requires sole proprietors to report revenue, expenses and profits using Schedule C. This is a form that you add to your standard personal tax filing (e.g., the 1040 filing). Tracking all your expenses in your Creative Juice account makes it easy to do.
Note that to qualify as a sole proprietor, you need to be operating without a partner — that is, you need to be running your own business by yourself.
Once you’re starting to transition into earning more income (~$300/month), you should set up a separate entity in order to separate your liability and business activities from your personal ones. Most likely, you’ll want to be a LLC or S-corp. You should also do this if you decide to take on a business partner and co-own your business.
LLCs are simpler than S-Corps, and as a result, cheaper to maintain because you’ll pay less in state registration fees, accounting, and mental overhead. You’ll basically file your taxes like you did as a sole prop (using your Schedule C).
If you’re looking to set up an LLC, check out our partner startpack.io and get a 50% discount when you say you’re a Creative Juice member.
Once you hit more than $75,000 / year in profit, it may make more sense to switch from an LLC to a S Corp because of the tax savings. To switch, you’ll need to file an election that informs the IRS to treat you as a S Corp. It’s advisable to consult with an accountant before making this decision.
Here’s a breakdown of how to think about the best structures:
Questions? Other thoughts? Give us a shout at firstname.lastname@example.org